It’s all possible — if Trump wins. But Trump might lose, and there are some signs that investors may be overestimating Trump’s election odds and placing a lot of bets that might go bust.
In betting markets, Trump and his Democratic rival, Vice President Kamala Harris, were tied as recently as early October. Trump’s odds of winning have been rising ever since, with the RealClearPolitics average showing 63% odds of a Trump win and just 36% odds of a Harris win. That’s the largest lead Trump has had in betting markets since Harris replaced Joe Biden at the top of the Democratic ticket in July.
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Traders seem to be taking their cues from Trump’s rising odds in betting markets. But betting odds are completely different from polls, which show a dead heat. Betting markets show a probability of winning, which is different from the marginal lead in a poll. Jim Bianco of Bianco Research points out that in betting markets, anything less than 66% odds for Trump is the equivalent of a toss-up. Trump would only be clearly favored if his odds in better markets were above 66%, and they’re not.
Analysts at Citi noticed this disparity during a recent conference on international finance in Washington, D.C. “Investors are almost uniformly expecting a Trump victory,” Citi explained in an Oct. 28 analysis. “Political analysts, on the other hand, still see the race as very tough, and biased to Trump, but close enough to 50-50.”
The reason for that possible bias toward Trump is polling inaccuracy. In 2016 and 2020, polls underestimated support for Trump. His actual vote tallies outperformed polls by about 1 to 3 percentage points. With this year’s polls basically tied, Trump would be the obvious winner if he once again outperformed by a couple of percentage points.
But pollsters have been trying to fix those inaccuracies, and this year’s polls might be more or less correct.
There have also been polls that overestimated Republican momentum, such as the ones forecasting a GOP “wave election” in the 2022 midterms, which never materialized. That year, Democrats actually outperformed the polls. Trump wasn’t on the ballot of course, and there’s a presumption that Trump’s presence in an election distorts polls more than Trump’s endorsement of other candidates, such as the 250 or so he backed in 2022.
In the final days of the 2024 race, each candidate could benefit from late-breaking intangibles that aren’t evident in polls.
In the past, Trump has benefited from the “shy Trump voter” who didn’t want to tell pollsters he or she planned to vote for Trump, which is one reason polls undercounted Trump’s support. There could still be shy Trump voters, especially since this is Trump’s first election since the Jan. 6, 2021, riots at the Capitol. Some voters disgusted by the pro-Trump riot might still plan to vote for him, even if they don’t want to say so. Trump could also benefit from male voters who simply won’t vote for a female presidential candidate.
Harris has advantages, too, that could prove decisive in the final days.
Trump seems to have a ceiling of about 47% of the vote nationwide. He can still win the Electoral College by winning key swing states, even if he stays below his nationwide ceiling. But Trump’s upper limit could limit his tally in swing states too.
Are the betting markets wrong? Republican presidential nominee and former U.S. President Donald Trump delivers "Trump Will Fix It" remarks during a press conference at Mar-a-Lago, in Palm Beach, Florida, U.S., October 29, 2024. (Photo: REUTERS/Marco Bello) ·REUTERS / Reuters
Harris also has the emotional issue of abortion rights in her column as she campaigns to restore some of the liberties overturned with the help of three Trump appointees to the Supreme Court. That's a highly motivating issue for millions of women who are sure to turn out no matter what.
Some election models give Harris a slight edge. The Moody’s Analytics election model, based on economic data in the swing states and historical trends, predicts a narrow Harris win, with 302 electoral votes for Harris and 236 for Trump. Factors that may be helping Harris are falling gasoline prices, with the national average now around $3.13 per gallon, and improving consumer confidence. The main thing that could hurt Harris in that model would be a lower Democratic turnout than expected or a higher Republican turnout.
None of this is an argument that Harris will win. Instead, it’s a warning that markets may be overstating the odds of a Trump win, with Trump trades unwinding rapidly if he ends up losing. If Harris does prevail, that could trigger a quick drop in interest rates, a perceived decline in inflation risks, and the possible collapse of DJT’s share price.
Elections have consequences, as they say, and this year the consequences could include a lot of money speculators have wagered on the outcome.
